Ethereum is Not A Security – SEC Chief

Jay Clayton, of the Securities and Exchange Commission, has confirmed the current analysis that Ethereum, as well as other decentralized digital assets, aren’t securities. This is still the position of things even if they were sold through illegal securities offerings.

Ethereum, Similar Assets Aren’t Securities

Clayton revealed this to Ted Budd. U.S House Rep, in a letter. Budd had previously requested for clarity on the matter by SEC. He wanted a clarification on whether William Hinman, SEC Director, spoke for himself or voiced the opinion of the body.

The SEC chief did not referent the cryptocurrencies by name but confirmed that he supported Hinman’s analysis of what assets can be classified as securities.

In the letter, Clayton wrote,

“Your letter also asks whether I agree with certain statements concerning digital tokens in Director Hinman’s June 2018 speech. I agree that the analysis of whether a digital asset is offered or sold as a security is not static and does not strictly inhere to the instrument. A digital asset may be offered and sold initially as a security because it meets the definition of an investment contract, but that designation may change over time if the digital asset later is offered and sold in such a way that it will no longer meet that definition.

I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework.”

Institutional adoption is on the way

In 2018, Hinman said that crypto assets like Ethereum might have been a security after it was issued. This is because it was initially distributed through an Initial Coin Offering. However, as time passed, the crypto was decentralized after the network launched. Also, new currency units were introduced through coin mining and not a token sale as the others were.

Since then, the position of Hinman was not fully clear as a SEC policy of personal view. In the past, Clayton said that bitcoin was not a security. However, he did not say anything about other cryptos such as Ethereum.

This distinction means a lot of this point. A classification of securities will would have had negative effects on the crypto. SEC warned that all exchanges that list illegal securities would be sanctioned.

Also, the clarity could help promote institutional adoption since the questions surrounding the legal status of cryptos have been one of the roadblocks to adoption of digital currencies.

Marco Santori Cautions enthusiasts

Crypto lawyer and blockchain president Marco Santori cautions enthusiasts in the space. He asked them not to follow the contents of the letter deeply. Santori drew attention to the fact that Clayton has agreed with Hinman’s analytical model, however, he failed to address the specific application. He believes that Clayton refused to speak specifically because it would be construed as the position of the body and will be legally binding. This is what SEC is trying to avoid.

He stated his position on his Twitter handle and told all enthusiasts to apply caution when interpreting the letter.